CareFirst adviser conflict alleged

Credit Suisse also advised firm trying to take over insurer

March 02, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

The chairman of a House committee that oversees health care charged yesterday that a financial adviser to CareFirst BlueCross Blue- Shield had a conflict of interest when it recommended a $1.3 billion price for the insurer's proposed sale to Well- Point Health Networks.

The statement by Del. Michael E. Busch, chairman of the Economic Matters Committee, came as sentiment was growing in the General Assembly for passage of a flat-out prohibition on CareFirst's conversion to for-profit status and sale.

As of yesterday, 75 delegates - more than half the House membership - had agreed to co-sponsor a bill that would quash the deal.

Busch, who previously had been skeptical about taking the matter out of the hands of the insurance commissioner, said he would not rule out House passage of the measure.

To support his conflict-of-interest charge, Busch pointed to a Nov. 18 letter from Credit Suisse First Boston to the CareFirst board in which the investment banking firm discloses that "a significant portion" of its fee is contingent on completion of the merger.

The letter also notes that Credit Suisse has provided financial services to WellPoint and may do so again in the future. Credit Suisse also disclosed that it may also actively trade in WellPoint stock and bonds.

Busch said all three circumstances raise questions about whether Credit Suisse could do an unbiased evaluation.

"The Credit Suisse letter speaks volumes about the corporate world and how things are fraught with conflict," the Annapolis Democrat said.

"I don't know how anybody can legally do this. I don't know how the Securities and Exchange Commission can let companies get away with it," Busch said.

James P. Day, a spokesman for CareFirst, said the insurer does not see any conflict of interest in its relationship with Credit Suisse.

"This arrangement is standard practice and process from start to finish," Day said.

Victoria Harmon, a Credit Suisse spokeswoman, echoed his comments.

"There is nothing inappropriate or unusual about these matters - all of which were fully disclosed," Harmon said.

Carl Schramm, chairman of Greenspring Advisors in Baltimore and author of an Abell Foundation report that criticized CareFirst's plan to convert to for-profit status, said Busch has a valid point about Credit Suisse.

"They can't be a disinterested judge of the transaction price if they make a market in the stock of WellPoint or hold it in their accounts," Schramm said.

He noted that Credit Suisse was reported yesterday to be under congressional investigation for its role in setting up some of Enron Corp.'s failed partnerships.

CareFirst's proposal to end more that 60 years of nonprofit status has run into stiff opposition in both the Maryland House and Senate.

Early in the session, legislators introduced a series of bills that would in various ways make the proposed conversion more difficult - including a broadly supported bill that would give CareFirst the burden of proving to the insurance commissioner that the deal is in the public interest.

Del. Shane E. Pendergrass, the lead House sponsor, said a decision by Insurance Commissioner Steven B. Larsen could be appealed to the courts.

But an act of the General Assembly, Pendergrass contends, would be the final word on the subject.

The Senate has in recent years been more friendly territory for CareFirst. But Sen. Christopher Van Hollen Jr., the lead Senate sponsor of the anti-conversion bill, said sentiment against conversion and sale is running high in that chamber.

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